From the TUC

Why diet-ISDS is almost as bad as ISDS, and why we should oppose both

31 May 2015, by in International

The popular outcry against Investor-State Dispute Settlement (ISDS), the element of trade deals which gives foreign investors a privileged route to claim compensation for measures they claim cost them future profits, led the European Union Trade Commissioner to come up earlier this month with an alternative she hopes people will find more palatable. Her version is probably slightly less awful than what we’ve got at present, but it’s still not acceptable, and people need to start making more of a noise about not just ISDS, but the diet-ISDS alternative. ISDS is a key part of the EU-Canada trade deal that has been signed but not yet ratified (CETA), and Commissioner Malmstrom is arguing that her alternative should be a key part of the EU-US trade deal called TTIP (the Trans-Atlantic Trade and Investment Partnership.) 

ISDS was initially developed in 1959: the first example was part of a Pakistan-Germany Bilateral Investment Treaty allegedly signed so that the two countries would have something to show for a state visit (that, at least, is what the Pakistan trade minister at the time now says, and he should know.) It cropped up in Bilateral Investment Treaties for the rest of the century, but has now made the transition into fully-fledged trade deals. And as its presence in such deals has increased, the number of cases taken by foreign investors against democratically elected governments has increased exponentially: about one in ten of all ISDS cases over more than 50 years were settled last year alone.

ISDS provides foreign investors (but not domestic investors, who have to use domestic courts) to use international tribunals to hear their complaints that actions by states that have signed up to deals containing ISDS, if they think that the actions of the government have harmed their profits, their future profits and even, in some extreme cases, their expectation of future profits. That means that if a contract is ended early, the foreign investor might be able to sue not just for the loss of that money, but the losses that would have been incurred if the contract had been renewed, even if no decision to renew had actually yet been taken!

The actions governments have been sued for include raising the minimum wage, introducing plain paper packaging for cigarettes from Australia to Uruguay, stopping environmentally harmful activities (see below), returning privatised services to the public sector and ensuring that medical treatments are effective and represent value for money. Not all of these cases are won by the private investor, but even if the government wins, they often have to pay some of the legal costs, and even unheard cases have a chilling effect. Philip Morris’ famous case against Australia over plain paper packaging hasn’t even been heard yet, but New Zealand decided not to proceed with a similar message because of the case, and it may have influenced the British government’s thinking, too.

For British trade unionists, the main objection to ISDS is how expensive it would make returning the NHS to the public sector, but it applies to lots of other democratic decisions we’d like British governments to take. Countries like Brazil, India and South Africa are re-examining the deals they have signed up to because they contain ISDS. Even the Irish government – not always bothered about giving corporate multinationals an easy ride – have never signed up to an agreement containing ISDS.

As an example, in a matter of weeks, an ISDS tribunal could decide whether the tiny Central American nation of El Salvador will have to dish out millions of dollars to mining giant OceanaGold for rejecting its proposed gold mine. 90% of El Salvador’s water is contaminated already. And OceanaGold’s mine would ruin the country’s last remaining clean water. El Salvador should have the right to reject the mine to protect its water and people. But the Canadian-Australian company is suing El Salvador for a whopping $301 million in an ISDS tribunal. We’re backing a Sumofus global petition to call on the tribunal to reject OceanaGold’s case.

The most recent case to be reported concerns the entirely sensible decision by the Belgian government to nationalise the Fortis Bank during the global financial crisis to prevent its bankruptcy and the damage that could have done to the Belgian and European banking system. Ping An Insurance (an arm of the Chinese Government – so don’t believe it if you’re told that ISDS has to be part of TTIP and CETA because otherwise the Chinese won’t agree to it: they are enthusiastic proponents) sued the Belgian government for the losses it incurred as a shareholder in the bank. The case was only rejected because the treaty Ping An sued under (signed in 1986) did not include ISDS – and yet the Belgian government still had to pay its own legal costs, which could well run into millions!

There are lots of reasons to oppose ISDS: the secrecy that usually applies until (and sometimes after) a decision is reached; the lack of access to the courts for other interests like citizens’ groups; the lack of an appellate mechanism allowing decisions everyone agrees are bonkers to be challenged or overturned; the conflict of interest arising from the small group of lawyers involved in both taking cases and serving as arbitrators; the massive legal costs and so on. But the two key problems are that ISDS could make democratic decision-making by elected governments staggeringly expensive, and that it gives foreign investors a route to fantastic compensation payments under trade deals that are available to no one else – neither domestic investors, nor workers, nor consumers, nor environmental campaigners.

That unique and privileged position means that if trade deals lead to workers having their jobs taken away, their wages slashed or their working conditions affected, they get nothing. Even if their fundamental human rights at work – the ones set out in the core ILO conventions – are abused, CETA only provides for a committee of experts to issue a strongly worded report. It’s hardly something you can pay the mortgage with, still less become fabulously wealthy.

So, what about Commissioner Malmstrom’s alternative? She wants to see a UN body (although the latest tribunal cases mentioned above have been heard by a World Bank tribunal, which is probably not hugely different), hearing cases in public, addressing conflicts of interest, allowing appeals, excluding frivolous claims, making the losing party pay the costs, and even providing governments with some protections to allow them to justify actions as democratically determined. That would deal with some of the worst aspects of the current ISDS system. But it wouldn’t address our fundamental objection, which is that foreign investors get special rights and a special court system.

There is abundant evidence that ISDS is causing terrible things to happen, and giving multinational enterprises and corporate investment funds access to a whole new income stream (there is even a secondary market in the costs of taking such cases, so people are actually making money betting on the outcome of these cases). But there is precious little evidence that ISDS is a solution to an actual problem. In the case of CETA and TTIP, foreign investment has flowed both ways across the Atlantic for generations, worth trillions of dollars, without ISDS or any special legal system for foreign investors, so there is no case for such a system. Meanwhile hundreds of thousands of workers have lost out under trade deals without any compensation at all, and no governments seem particularly bothered.

So the TUC and unions on both sides of the Atlantic are opposed to CETA and calling for its rejection because it includes ISDS (and other things), and now we’re campaigning to get not just ISDS but Malmstrom’s alternative out of TTIP.

4 Responses to Why diet-ISDS is almost as bad as ISDS, and why we should oppose both

  1. John
    Jun 1st 2015, 5:04 am

    An ongoing correct indictment of this planned infamous corporational transatlántic agreement. & what ís your supposed new Conservative government going to do about this? Little to nothing I subjectively think. So long as ordinary people are continually pressurised with the threat of worse working conditions, poorer pay, unemployment, etc then they will do exactly as they are told with or without your TUC – welcome to an equivalent of George Orwell’s 1984!

  2. #TTIP: What MEPs will be voting on this Wednesday – ToUChstone blog
    Jun 9th 2015, 12:32 am

    […] TUC has urged MEPs to reject ISDS explicitly, and we also want them to rule out the ISDS-lite alternatives that panicky supporters of global multinationals have drafted to head off massive popular […]

  3. #TTIP news: 10 reasons why the latest #ISDS compromise is a bad deal
    Jul 2nd 2015, 2:01 am

    […] the drawbacks of ISDS, it really isn’t an alternative to ISDS, but just a softer version, or ISDS-lite. It still provides for individual foreign investors to challenge state decisions directly, with […]

  4. Simon Sykes
    Jul 7th 2015, 11:54 am

    This legislation seems to be set up in the favour of large business and dominant government and offers too many potential threats to smaller businesses and government.

    The European Court should have all of its abilities available to represent any individuals under its own jurisdiction.

    Simon Sykes